Second Circuit Reverses District Court’s Dismissal Of Metal Purchasers’ Antitrust Claims
09/04/2019On August 27, 2019, the Second Circuit Court of Appeals vacated a grant of summary judgment by the United States District Court for the Southern District of New York, which had dismissed the claims of a group of aluminum buyers on grounds they did not have standing in an antitrust suit alleging a conspiracy to artificially inflate aluminum prices. Judge Pierre N. Leval, writing for the panel, disagreed with the District Court’s dismissal, ruled that plaintiffs had adequately pleaded antitrust injury, and remanded the case for further proceedings. Eastman Kodak Co. v. Henry Bath LLC, 16-4230, 2019 WL 4018285 (2d Cir. Aug. 27, 2019).
Plaintiffs are a series of manufacturers that purchased “primary aluminum” from 2011 to 2014, principally through long-term supply contracts with aluminum producers. “Primary aluminum” is a product forged at a smelter or plant by original producers, as opposed to “secondary aluminum” in the form of reconstituted aluminum scrap. All plaintiffs were direct purchasers of primary aluminum at prices that incorporated the Platts Midwest Premium, a regional benchmark price based on costs associated with the transportation, insurance, delivery, and storage of primary aluminum. Defendants are financial and warehousing companies that traded, sold, or stored primary aluminum in transactions that incorporated this premium in the metal’s sales price.
According to plaintiffs’ complaints, defendants violated Section 1 of the Sherman Act by conspiring to manipulate and raise the Platts Midwest Premium. Specifically, plaintiffs alleged that defendants caused delivery delays in the warehousing services market, which in turn resulted in price increases in the purchase of primary aluminum on the London Metals Exchange (“LME”). Plaintiffs claimed they paid inflated rates for primary aluminum as a result of this alleged conspiracy.
This decision was the latest development in multidistrict litigation relating to the same alleged conspiracy. In 2014, the district court had granted motions to dismiss claims by aluminum purchasers outside the primary aluminum market on the grounds that they were “inefficient enforcers” and therefore lacked antitrust standing, while allowing direct purchasers in the primary aluminum market to replead and continue their actions. In 2016, the Second Circuit affirmed the dismissals but based on a different standing rationale—the appellate court found that these plaintiffs lacked antitrust standing because their alleged injuries occurred in a “different market from any market allegedly restrained by the defendants.” Relying on that 2016 decision, the district court revisited its earlier decision to allow the primary aluminum market direct purchasers’ claims to proceed and dismissed them on the grounds that these plaintiffs purchased in the market for primary aluminum sales rather than the market for warehousing services—the locus of the restraint—and therefore lacked antitrust standing.
The Court held that the district court erred because, according to the complaints and accepting the allegations as true for the purposes of the motion, defendants’ alleged actions in the warehousing services market directly increased prices in the primary aluminum market. Relying on Supreme Court precedent in Blue Shield of Va. v. McCready, 457 U.S. 465, 479, 484 (1982), the Second Circuit emphasized that plaintiffs may suffer antitrust injury—and thereby meet standing requirements—when they “experience injuries that are ‘inextricably intertwined with the injury the conspirators sought to inflict.’” Here, the Court found that plaintiffs adequately alleged that defendants artificially raised the sales price they would receive in selling off their stock of aluminum by manipulating the Midwest Premium.
The Second Circuit rejected the district court’s conclusion that plaintiffs’ claims were too far removed from defendants’ actions to sustain an antitrust injury, finding that plaintiffs’ alleged injuries were “inextricably intertwined” with the alleged restraint. Even if plaintiffs did not suffer injury in the warehousing market, the Court held, “plaintiffs satisfied the [standing] requirements by pleading that the defendants restrained the market for the sale of primary aluminum, and that plaintiffs were injured in making purchases in the [very same] market for the sale of primary aluminum.” This was unlike the purchases of reconstituted “secondary aluminum” by end users whose injury was merely an “’incidental byproduct’” of the alleged restraints. In other words, if the allegations of the complaints were accepted as true, “the burden inflicted by the defendants on the warehousing market was merely the means to accomplish the defendants’ anticompetitive objective.” Accordingly, the Second Circuit vacated the district court’s dismissal and remanded the case for further proceedings.
It is important to note the somewhat unusual procedural posture of the case. After the original appellate opinion, defendants moved for judgment on the pleadings as to only some of the remaining plaintiffs. After further motion practice, the district court converted the motion to a motion for summary judgment because defendants included factual matter outside the complaints, and dismissed all the primary aluminum market direct purchasers. In doing so, the district court “relied primarily on the conclusion that the plaintiffs’ theory of antitrust injury was legally deficient—rather than on the inadequacy of the plaintiffs’ evidence.” The Second Circuit noted that, in light of this posture, the parties had not focused on the evidentiary showings usually made in summary judgment motion practice, and that it would also “focus on the sufficiency of the plaintiffs’ legal theory, rather than on their evidence.” As a practical matter, then, the appellate court’s ruling is limited to acceptance of the plaintiffs’ theory as articulated in their complaints, and should not serve as precedent for any evidentiary issue in any future proceedings in this matter, including any future summary judgment motion.